CHAPTER 15How the Price System Works1The whole argument of this book may be summed up in the statementthat in studying the effects of any given economic proposalwe must trace not merely the immediate results but the results in thelong run, not merely the primary consequences but the secondaryconsequences, and not merely the effects on some special group butthe effects on everyone. It follows that it is foolish and misleading toconcentrate our attention merely on some special point—to examine,for example, merely what happens in one industry without consideringwhat happens in all. But it is precisely from the persistent and lazyhabit of thinking only of some particular industry or process in isolationthat the major fallacies of economics stem. These fallacies pervadenot merely the arguments of the hired spokesmen of specialinterests, but the arguments even of some economists who pass asprofound.It is on the fallacy of isolation, at bottom, that the “productionfor-use-and-not-for-profit”school is based, with its attack on theallegedly vicious “price system.” The problem of production, say theadherents of this school, is solved. (This resounding error, as we shallsee, is also the starting point of most currency cranks and share-thewealthcharlatans.) The problem of production is solved. The scientists,89
90 Economics in One Lessonthe efficiency experts, the engineers, the technicians, have solved it.They could turn out almost anything you cared to mention in hugeand practically unlimited amounts. But, alas, the world is not ruled bythe engineers, thinking only of production, but by the businessmen,thinking only of profit. The businessmen give their orders to theengineers, instead of vice versa. These businessmen will turn out anyobject as long as there is a profit in doing so, but the moment there isno longer a profit in making that article, the wicked businessmen willstop making it, though many people’s wants are unsatisfied, and theworld is crying for more goods.There are so many fallacies in this view that they cannot all be disentangledat once. But the central error, as we have hinted, comesfrom looking at only one industry, or even at several industries in turn,as if each of them existed in isolation. Each of them in fact exists inrelation to all the others, and every important decision made in it isaffected by and affects the decisions made in all the others.We can understand this better if we understand the basic problemthat business collectively has to solve. To simplify this as much as possible,let us consider the problem that confronts a Robinson Crusoe onhis desert island. His wants at first seem endless. He is soaked with rain;he shivers from cold; he suffers from hunger and thirst. He needseverything: drinking water, food, a roof over his head, protection fromanimals, a fire, a soft place to lie down. It is impossible for him to satisfyall these needs at once; he has not the time, energy, or resources.He must attend immediately to the most pressing need. He suffersmost, say, from thirst. He hollows out a place in the sand to collect rainwater, or builds some crude receptacle. When he has provided for onlya small water supply, however, he must turn to finding food before hetries to improve this. He can try to fish; but to do this he needs eithera hook and line, or a net, and he must set to work on these. But everythinghe does delays or prevents him from doing something else onlya little less urgent. He is faced constantly by the problem of alternativeapplications of his time and labor.A Swiss Family Robinson, perhaps, finds this problem a little easierto solve. It has more mouths to feed, but it also has more hands
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